The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs

88 Pages Posted: 29 Nov 2018 Last revised: 3 Feb 2019

See all articles by Bernhard Ganglmair

Bernhard Ganglmair

ZEW – Leibniz Centre for European Economic Research - Junior Research Group Competition and Innovation; University of Mannheim - Department of Economics; Mannheim Centre for Competition and Innovation (MaCCI)

Christian Helmers

Santa Clara University - Department of Economics

Brian J. Love

Santa Clara University School of Law

Date Written: November 5, 2018

Abstract

We analyze the extent to which private defensive litigation insurance deters patent assertion by non-practicing entities (NPEs). We do so by studying the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents’ owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of patent enforcers and accused infringers. Assuming that a firm’s purchase of insurance is not observed by patent enforcers, we show that the mere availability of defense litigation insurance can have an effect on how often patent enforcers will assert their patents. Next, we empirically evaluate the insurance policy’s effect on the behavior of owners of insured patents by comparing their subsequent assertion of insured patents with their subsequent assertion of their other patents not included in the policy. We additionally compare the assertion of insured patents with patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that the introduction of this insurance policy had a large, negative effect on the likelihood that a patent included in the policy was subsequently asserted, and our results are robust across different control groups. Our findings also have importance for ongoing debates on the need to reform the U.S. and European patent systems, and suggest that market-based mechanisms can deter so-called “patent trolling.”

Keywords: NPEs, patents, insurance, litigation

JEL Classification: G22, K41, O34

Suggested Citation

Ganglmair, Bernhard and Helmers, Christian and Love, Brian J., The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs (November 5, 2018). Available at SSRN: https://ssrn.com/abstract=3279130 or http://dx.doi.org/10.2139/ssrn.3279130

Bernhard Ganglmair

ZEW – Leibniz Centre for European Economic Research - Junior Research Group Competition and Innovation ( email )

L7,1
Mannheim, 68161
Germany

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Mannheim Centre for Competition and Innovation (MaCCI) ( email )

L 7, 1
Mannheim, 68131
Germany

Christian Helmers

Santa Clara University - Department of Economics ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Brian J. Love (Contact Author)

Santa Clara University School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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